Tuesday 10 February 2009

Pearl River Delta: Skyrocketing Growth Halts

The Pearl River Delta, a former poster child of China’s economic miracle, is facing a hard time in 2009.

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Pearl River Delta: Skyrocketing Growth Halts

The Pearl River Delta, a former poster child of China’s economic miracle, is facing a hard time in 2009.

Zhou Qiong, Caijing
5 February 2009

The low, coastal lands where the Pearl River becomes an estuary and runs into the Pacific Ocean have, in the 30 years since China began market reforms, transformed into one of country’s most fiery economic engines, with its manufacturing sector paving the way.

But with America and Europe in recession and other economies tottering on the brink, orders are down, and the Delta has become the site of a pronounced slowdown. Whether it can get back on track will depend greatly the success of reforms undertaken in 2009.

According to an official from Dongguan, a major industrial city in the Pearl River Delta, 63 percent of village governments couldn’t make ends meet in the first three quarters of 2008, recording a total fiscal deficit of 600 million yuan. Service sector revenue also dropped 20 percent over the same period.

The country’s economic star, Guangdong Province, has long enjoyed average GDP growth of over 14 percent. But figures from the local statistics bureau show that GDP growth only reached 10.4 percent from January to November of last year – even lower than the 10.6 percent recorded in 1997 at the height of the Asian Financial Crisis.

Worse, November 2008 also marked Guangdong’s first negative growth in the total volume of imports and exports, and this year could be even harsher, with experts predicting GDP growth in Guangdong will slow down to record lows below 8 percent.

Things just as dire in manufacturing cities such as Shenzhen and Dongguan, where Caijing learned that about 10 percent of the local enterprises have closed down or gone out of business, 30 percent of labour-intensive enterprises were shut down or on the verge of bankruptcy, and 30 percent of the migrant workers were unemployed or had been dismissed.

Of the workers who kept their positions, many have been cut back to eight-hour workdays and are being asked to “enjoy” two-day weekends, reducing their salaries to the minimum wage level at 770 yuan per month.

In response to declining overseas orders, many enterprises in the Pearl Delta are quietly trying to foster their domestic sales channels. But in a market already showing signs of oversupply, this is not an easy task.

Not Just the Financial Crisis

It seems that the difficulties now facing the Pearl River Delta are rooted in the U.S.-led financial crisis and rising costs of production. But some experts argue these merely served as catalysts.

Economist Wu Jinglian believes the fundamental problem in the Pearl River Delta lies in its growth model, which relies too heavily on manufacturing and at the cost of developing is service industry.

Unfortunately, the downturn could exacerbate this situation. Some officials and scholars believe that in manufacturing-intensive areas like Dongguan and Shenzhen the pressure to “maintaining growth” in 2009 will be overwhelming, leading to old ways to be perpetuated without any serious thought given to more systemic reforms.

However, Le Zheng, president of Shenzhen Academy of Social Sciences, is not so pessimistic. He compares the current situation to “shares reaching their upper limit” or “a car in need of repair after running at full speed for years.”

It is not so bad, Le says, for the economy to slow down and some enterprises to close. In fact, it could be the start of a new spurt of growth. “The enterprises that survive the crisis could be the source of much-needed industrial upgrading,” said Le.

Joined by Hong Kong and Macao

Nowhere is the necessity of reform better grasped than in the Delta itself. The Guangdong government proposed a new strategy last May calling for the transfer of labour-intensive and export-oriented industries from the Pearl River Delta to surrounding areas to make room for more service industries and value-added manufacturing.

The result, as envisioned by Guangdong planners, would be an economy driven by a modern services industry and technologically advanced manufacturing.

However, support for this “double-transfer” policy evaporated as times grew tougher, and now it looks like the move will fail before it’s implemented, barring some feat from the Guangdong government.

As of January 8, 2009, the central government stepped in and unveiled its own, long-awaited development plan for the Pearl River Delta, which has been approved by an executive meeting of the State Council last December.

Under the plan, the Delta will join Hong Kong and Macao to form a trinity of “globally competitive” regions in China. The government hopes to make these areas central not just to Chinese business but to the Asia-Pacific region as a whole.

The plans suggests that, in order to achieve this economic and social transformation, Guangdong should adopt Hong Kong’s well-tested methods of talent training, service development, and economic and public management. It also must undertake reform of government institutions, making them more transparent, law-abiding, efficient and honest.